10 Unchanging Principles for Investment Success

"I very frequently get the question: 'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?

And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time...

[I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher, [or] 'I love Amazon; I just wish you'd deliver a little more slowly.

Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now.
- Jeff Bezos

Amazon has evolved so much since its creation.

It's done this by focusing on what won't change. Not what will change.

This lesson can also be applied to investing.

Investors often get caught up in the frenzy of trying to predict how the world is changing and capitalizing on it.

This is extremely difficult to do. The future is unpredictable.

Covid, 9/11, the rapid rise of social media, and the Russian invasion of Ukraine are all recent examples of events that next to no one predicted yet radically changed the world.

How the world will look next year, never mind in 10 years, is impossible to predict.

Recognizing what won't change and capitalizing on it gives you a greater chance of success.

Here are 10 high-level principles that won't change in 10 years and how they can help improve your financial outcomes.

1. Tune out the noise

People who can quickly distinguish what matters gain a massive advantage in investing.

Watching the news does not make you a better investor. The media is designed to capture attention and sell ads, not inform you.

Economic and stock market forecasts are similarly useless.

Tune all of this out.

2. Your emotions will work against you

Humans are programmed to be terrible investors.

Humans have spent more than 99% of their existence in the hunter-gatherer environment. All of us are ingrained with natural tendencies which helped our ancestors survive.

The problem is that many of these traits and biases are not helpful to us in modern society.

Emotions are and will continue to be the most significant source of investment mistakes.

You can't eliminate them, but being aware of them can help mitigate their impact.

3. The power of consistency

A portfolio that consistently delivers solid results over the long term is better than one that relies on luck for a single outstanding year.

People underestimate how seemingly average returns can compound into extraordinary ones with consistency.

4. Time in the market matters more than timing the market

People will send all sorts of energy trying to predict the short-term stock market even though there's no evidence that this can be done consistently.

It's better to just to sit back and let the market work for you.

5. If something sounds to good to be true it probably is

There will always be people trying to sell you the promises of high returns with no risk.

An easy way too stay out of trouble is to avoid these people.

6. Simplicity

You should always default to simplicity.

Sometimes, there is a need for more complex structures or strategies, but there should be a clear reason or need for them.

7. You can't be good at everything

You shouldn't try to do everything yourself.

Everyone has weaknesses.

Having people around you to make up for these weaknesses and you accountable is invaluable.

If you try playing a game where other people are strong and you're weak, you'll lose.

8. More activity will reduce your returns

Contrary to our natural inclinations, investing is one area of human life where more activity leads to worse results.

9. There will always be speculative bubbles

Going back to the tulip bubble in the 1600s, manias have always existed, and they'll continue to.

Seeing other people quickly make money draws investors into speculative bubbles (FOMO).

10. You can't get rid of volatility in the stock market

You can't get rid of volatility in the stock market.

There are no free lunches in investing.

Volatility is the price you pay for the long-term upside of the stock market versus risk-free assets like cash or GICs

If you want the excess long-term returns the stock market provides, you have to get used to short-term volatility.

*The views and opinions expressed in this article may not necessarily reflect those of IPC Securities Corporation.